Report says Shell unprepared for Arctic drilling

ANCHORAGE, Alaska 
Shell was not fully prepared when it launched its trouble-plagued Arctic offshore drilling program last year, and the oil company also fell short in overseeing key contractors in the effort, according to a federal report released Thursday.

The report follows a 60-day review by the Interior Department that focused on problems Royal Dutch Shell PLC experienced with its drilling vessels and a spill containment vessel. Interior Secretary Ken Salazar said the company will have to submit more comprehensive plans before it would be allowed to operate in the Arctic again.

"Shell screwed up in 2012," Salazar said in a teleconference with reporters.

The report recommends that a more detailed plan include schedules of contractor work on critical components. It also recommends that Shell commission a third-party audit of the company's management systems.

Shell drilled last year in the Chukchi Sea off Alaska's northwest coast and in the Beaufort Sea off the state's north coast. But problems before and after drilling culminated with the grounding of one of two drill ships.

Shell said in February it will "pause" Arctic drilling this year.

Shell spokesman Curtis Smith said Thursday that the company takes the report seriously and will use the break in Arctic operations to learn from the review, an ongoing Coast Guard review and the company's own assessment.

"Alaska remains a high potential area over the long-term, and we remain committed to drilling there safely, again," Smith said in a statement.

Environmental groups were quick to criticize the 30-page report, calling it insufficient despite recognizing Shell's failings as unacceptable. The groups also knocked the Interior Department for failing to take responsibility for letting a company that was not ready for the challenges it met proceed in the first place.

"By and large, the review told us two things we already knew: Companies are woefully unprepared for the remote and unforgiving Alaskan waters, and our government improperly awarded Shell approvals to operate there," Susan Murray, Oceana's Pacific deputy vice president, said in a statement. "The Arctic Ocean is unique and important. Americans deserve better care and stewardship than oil companies or the government have provided."

Environmental groups bitterly oppose Arctic drilling in an environment that supports endangered whales, polar bears, ice seals and walrus. They contend not enough is known about drilling's effects on an ecosystem already being hammered by climate change, with summer sea ice continuing to be lost at a record pace. The groups also say oil companies have not demonstrated the ability to clean up a petroleum spill in ice-choked waters.

U.S. Sen. Lisa Murkowski of Alaska, the ranking Republican on the Senate Energy and Natural Resources Committee, said she will review the Interior Department's report to "ensure that stricter oversight is not code for prohibiting access to our resources."

The U.S. Geological Survey estimates 26.6 billion barrels of recoverable oil and 130 trillion cubic feet of natural gas exist below Arctic waters. The reservoirs could be linked to shore by underwater pipelines and then overland to the trans-Alaska pipeline.